selling the professional services firm - nspe

Selling the Professional

Services Firm

Learning Objectives

1. Deciding to transition, how to, and to whom?

2. Valuing your business

3. Making the Sale

4. Life after the Sale

Deciding to Transition –Selling Your Business

You are thinking about retirement, other business opportunities, and/or suffering burnout.

You are tired of the responsibilities of business ownership like payroll, taxes, insurance, HR but would like do what you do best and continue in business.

Or, you need to get out of the gap, and wish you were bigger to play in bigger markets.

Ways to Transition (sell) your Business

1. Sell to family members

2. Sell to employees

3. Sell to fellow partners if any

4. Sell to Venture Capitalist/Private Equity companies

5. Sell to larger firm in your industry, i.e., strategic acquisition

Case #1 - Sell to Larger Firm

1. Sell to family members – none interested or qualified

2. Sell to employees – they didn’t have any money

3. Sell to fellow partners if any – had no partners

4. Sell to Venture Capitalist – too mercenary

5. Larger Firm Strategic Acquisition – the best option for owners and employees; really the only choice

Strategic Acquisition

1. It would leave employees in a better situation

2. Owner gets the most value for the business from a firm who wanted either a) skillsets/people b) another geographic area or c) diversified product offering or d) all of the above.

3. The deal would be easier with a larger firm; Cash and Employment Agreement

Things to Think About

How to Value your Business?

Multiples of adjusted cash flow

You probably have a number in mind

Remember, the business will sell for what it will sell for; not for the magic number youneed to retire and live happily ever after

Do you have partners or other owners or are you a sole owner? Do you have a “bench?”

Biggie: tell your employees or keep it secret?

Assemble Your Team

1. CFO

2. CPA/Advisor

3. M&A Advisor

4. Attorney

Insider Tips

Think of this as just another sale. You’ve been selling intangibles all your career

There are two sales to be made: 1) sale of the business and 2) selling your employees on the notion of new ownership.

Work with the M&A advisor on the marketing package.

Don’t forget to keep the business running!

Key Employees

The buying firm does not want your key employees to run for the exits

Agreements can be made with key employees with a “stay” contract where they got a bonus if they stayed through the sale.

Help to Find Your Buyer

1. Broker – Strategic Targeting Process

2. Alert to competition; those that might be interested

3. It’s OK to approach prospective buyers; remember, this is a sale.

M& A Advisor - Finding Your Buyer

1. Advisor approaches market generally

2. For those who raise their hands, an NDA that includes non-recruitment of employees is required

3. A detailed firm description – Business Opportunity Summary is sent

4. Hold a conference call with target firms

5. If all goes well, they visit you and you visit them.

6. LOI, Due Diligence, Closing.

Prospective Buyer - Process

1. When they visit you, your employees will be wondering “who’s that?” How will you explain?

2. How’s the fit, focus and culture? Do you like them and vice versa? How do you feel your employees will be treated? Is this a good deal for them, as well as you?

3. Have your number and terms in mind so if an offer results, you are prepared.

Now for the Nitty Gritty

Assessing the Buyer

Company philosophy; culture, fit and focus

Seek a good match

How will they treat your present employees?

Do they compete with your clients?

Get comfortable with the new managers/owners

Expect to have to stay on for transition

How will they incorporate your business?

Keep the name & brand - not your worry

The Deal

How will you be paid

Cash at closing

Stock

Cash and stock

Any performance contingencies?

Expect to sign a non-compete – time, geography, focus

Employment Terms

Closing Date

Informing the Employees

This is also a sales job; transition is key

Emphasize positive benefits for employees of new ownership

Greater job security

Better fringe benefits

More career paths open up

Chance to work on bigger and different types of projects

What To Do Before Selling

Continue or beef up business development

Get rid of dead weight

Get financials in order

Get financial reporting in order

Secure tax returns for past 3years

Evaluate professional servicesrelated to selling your business e.g. Stonemill Partners

Photo Supplied by FreeDigitalPhotos.net

What Happens Once You Agree With a Firm to Sell Your Business

Find out their process/timing

Supply them with requested documentation – due diligence

Continue with business development

Work with preliminary purchase agreement

Follow time line

Keep target closing date in mind


How can a business sale be financed?

SBA backed bank financing

Small down payment

Seller financing – usually will always be some

Traditional bankfinancing

Cash % at closing

Incentives/ Earn-outs


How does Valuation work

Valuation models

Components of different models

What banks look at

Is there a value added component?

Is it different than what banks do in their process?

What impacts it positively ornegatively?

What is estimated and whatmust be substantiated?

Are comps considered?


How is the listing price arrived at

How does it relate to valuation

How will the market respond

Can it be changed later

How do banks view it

How much above valuation can a business be listed for

What happens later if the price is to be reduced?


What Initial Steps Happen When a Prospective Buyer Expresses Interest

Introductory call / visit - what is discussed

What can be obtained before an introductory phone call and what is available at due diligence

What questions are askedduring the introductoryphone call typically

What are next steps after anintroductory call

Are there templates for an LOIthat can be supplied to the prospective buyer


What to Expect from an LOI

Is it binding?

What if I don’t like the price/termsor other components - can it becountered or negotiated?

How are employment agreements treated in an LOI?

Do terms/pricing or other components change between LOI and closing?

Are dates specified for due diligence periods, bank financing time periods and closing dates?


What Happens During Due Diligence Period

What items are typically requested?

Is the time period strict?

Is there anything that can be worked on ahead of time to supply to the buyer?

Will customer contracts be reviewed?

Will employees be contacted?

Should a purchase agreementbe developed during this time?


What All Goes in a Purchase Agreement

Does it reflect the LOI?

What if something came out of due diligence that suggests something different than the LOI?

What exhibits are typical?

What is the timing for development, review, finalization and signing?


What are the last few things that need to happen before closing

Any insurance consideration (tail insurance)?

What happens to work in progress and accounts receivable accounting?

What does the bank need to do to disburse funds

Who handles the closing

How is money disbursed


What is to be expected from the buyer’s bank if bank financing is

involved

Third party valuation

Bank valuation vs. Stonemill valuation

What is the timing?

Is there a proposal letter inaddition to the commitmentletter?

When is financing for sure?

Are they involved in closing?Photo Supplied by FreeDigitalPhotos.net

Employment Agreements – Staying On With New Company

Are there premiums for being a past owner

Will the seller be paid the same even though there are less ownership duties

Will the seller become billable

What is the length of time –specified or ongoing


Employment Agreements – Staying On With New Company

How are benefits like insurance handled?

Is this part of the purchase agreement?

Are there any considerations for employment agreements as it relates to SBA financing?


What are the options if there is an impasse between seller and prospective

buyer?

Do I consider going back to market?

If I go back to market what is the success rate?

If I go back to market what is the new timing?


What are the options if there is an impasse between seller and prospective

buyer

Can a previous prospective buyer come back in to play if I go back to market?

Will the listing price change up or down?

How do I evaluate going back to market with market or business trends?


Other

Once due diligence is done then what

What Communication Happens Along the Way with Key Employees

When are Current Employees told of an impending sale


Information Resources We are pleased to offer you articles in our When to Sell Your Business Series to help you with the management of

your business and the planning and decision making of your growth or transition strategies. We also offer information for when you want to plan an acquisition (email us for the article(s) of choice).

Increasing Firm Value - Getting Your Financial House in Order

Free Marketing Report: 50 Marketing Tactics for Engineers and Architects

When to Sell Your Business:

Beefing Up Business Development Before Selling -Business is On an Upward Trend

Is Your Firm in the Gap?

7-Step "Leg Up" Plan

No Interest Anymore in Ownership Duties

Entrepreneurial Burnout

Retirement Age - Factors to Consider

After the Sale: Live Long and Prosper

www.stonemillpartners.com

Al Lautenslager – [email protected]

Direct Line: 630-740-1397

Patrick Neal – [email protected]

Direct Line: 770-510-9367

http://www.stonemillpartners.com

mailto:[email protected]

mailto:[email protected]

selling the professional services firm - nspe

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